M&A in Spain: The 80% Mistake That Breaks Sale Transactions

Three real-life valuations that explain why Spanish entrepreneurs lose millions when selling their companies

A dental clinic, a metalworking workshop, and an import business. Three cases that reveal which valuation method to apply, which mistakes kill a deal, and five levers to reach the negotiating table with a higher multiple.

In the transactions I have advised on in Spain, it is common for business owners to go to market asking for between 70% and 100% of their annual turnover. The benchmark used by a professional buyer—especially private equity funds with an Anglo-Saxon investment culture—rarely exceeds 25–30%. This gap is not a statistical quirk: in my experience advising private equity and M&A transactions, it is the number one reason why perfectly viable deals drag on indefinitely or collapse before signing.

The problem is not that Spanish entrepreneurs are more greedy. It is that they value from the inside—from the effort invested, the sleepless nights, the family history—while investors value from the outside, using standardized and dispassionate methods that measure only one thing: the ability to generate cash. Closing that gap is the first task of any advisor preparing a transaction. And it rarely closes on its own.

What an investor really looks at when valuing a company

Before diving into the case studies, it is worth clarifying what a fund or professional buyer is actually looking for when requesting financial statements. They do not view assets the way the owner does. They focus on goodwill—contracts, licenses, customer portfolios, brands, patents—and, above all, EBITDA: how much money the company truly generates, stripped of the creative accounting practices many entrepreneurs use for tax optimization.

In the Spanish market, four valuation methods are used almost universally: EBITDA multiples, discounted cash flow (DCF), asset-based valuation, and comparable closed transactions. In practice, the vast majority of professional valuations rely on one of the first two.

Applying the wrong valuation method to the wrong business is one of the costliest mistakes an entrepreneur can make when trying to value a company independently. The following three cases illustrate this better than any theory.

Case 1. The neighborhood dental clinic: when you value the business activity, not the square meters

A dental clinic in a well-established residential area. Twelve years in operation, annual turnover of €380,000, net profit of €85,000, a 180 m² premises with two fully equipped treatment rooms and a waiting area, annual rent of €18,000 under a 5+5 lease agreement, and three employees on payroll. The owner, convinced that the project was worth a fortune because of how much it had cost to build, was asking €600,000.

A reasonable market valuation: between €130,000 and €215,000, meaning between 1.5 and 2.5 times annual earnings.

This is a multiples-based valuation—the standard for service businesses with stable operating histories of more than ten years in sectors such as healthcare, retail, or hospitality. What increases the multiple is not the square footage or the equipment: it is the longevity of the practice, patient loyalty, and the professional’s reputation in the neighborhood. What does not count, painful as it may be for the owner, is the lease or the property itself, because they do not own it.

The lesson learned in transactions of this kind is clear: the first adjustment an advisor works on with the owner is separating the business value from the emotional value of the place. Without that adjustment, there is no real negotiation.

Case 2. The family-owned metalworking workshop: when the assets are worth more than the business activity

A family-owned metalworking workshop with more than 30 years of history, 35 employees, €2 million in annual turnover, and annual profits of only €45,000.

If you apply EBITDA multiples, the valuation comes out absurdly low. If you apply DCF, it looks even worse: projected cash flows do not justify even the manager’s salary.

And yet, this company is worth money—a lot of it.

The difference is that this is a case for an asset-based valuation: valuing the industrial warehouse, CNC machinery, tooling, and inventory at replacement cost. The buyer is not acquiring a profitable operation; they are acquiring an installed production platform—a facility in an established industrial estate, depreciated but fully operational machinery, and all sector licenses and certifications in order—which saves them years and millions in CAPEX if they had to build it from scratch.

This is the classic case where an advisor radically changes the equation. I have seen entrepreneurs in this situation reject offers as “too low” when they were actually fair, and I have also seen others accept miserable offers because they believed “the business no longer makes money.”

Both mistakes can be avoided with a serious prior analysis of what the company really is: a stream of profits, an asset platform, or a combination of both.

Case 3. The automotive spare parts importer: when intangibles drive value

An importing business with 7–8 years of activity, 20 employees, €3 million in turnover, and €75,000 in annual profit.

On paper, a modest company.

But it has exclusive distribution agreements with European automotive component manufacturers for the Iberian market—and that changes everything.

Here, the correct method is discounted cash flow, projecting five years ahead: future revenues generated by the exclusivity agreements are modeled, discounted back to present value using a risk-adjusted discount rate, and the resulting valuation can comfortably exceed €1 million.

That is more than thirteen times the latest annual profit.

The lesson is uncomfortable for many entrepreneurs: intangibles—exclusive agreements, framework contracts with manufacturers, relationships with workshops and dealerships, captive client portfolios—carry more weight than the last year’s figures.

But only if you know how to document them, defend them, and present them in the format a professional investor expects.

That work, once again, is the advisor’s job.

The three mistakes that kill a deal before it starts

After years advising SME sale transactions, the three most common recurring mistakes are always the same.

The first is emotional overvaluation, which brings us back to the initial gap. Anyone asking for close to 80% of annual turnover because of attachment to the effort invested is not negotiating—they are unknowingly dismissing buyers.

The second is dragging negotiations beyond 12 months. Statistically, a transaction that does not close within 6 to 12 months has very little chance of ever closing. Counterparties change, markets move, current-year numbers distort the previous year’s figures, and buyer enthusiasm fades. Managing timing is part of the process.

The third is mixing personal accounting with corporate accounting, and within that, failing to separate the sale of the business from the sale of the property.

When a professional buyer detects accounting opacity, they do not negotiate downwards—they walk away.

Preparing clean financials in advance—ideally two clean financial years before going to market—is the highest-return investment a business owner planning to sell can make.

Five levers to increase value before sitting at the negotiating table

There are five specific moves that, if implemented 18–24 months in advance, can measurably push the multiple upward.

Signing strategic alliances with complementary companies or institutions shows that the business does not depend exclusively on the owner.

Obtaining sector recognition—awards, rankings, certifications—turns subjective perception into documented proof.

Participating visibly in committees, trade associations, and national and international fairs places the company on the radar of potential buyers before any formal process begins.

Attracting premium clients, even in small numbers, raises the business’s profile and serves as a strong signal to both new customers and investors.

And maintaining full transparency in financials, workplace culture, and operational processes is what transforms a “this might be interesting” into a “we want to move forward.”

Each of these levers sounds obvious.

None of them is obvious in execution, and none can be improvised in the three months before going to market.

What no one tells you about preparing a company for private equity

Preparing a company for a private equity transaction properly takes between 18 and 24 months.

That is the minimum time needed to clean up the accounts, document intangibles, sign meaningful alliances, strengthen the management team, and build the narrative an investor needs to hear in order to pay a high multiple rather than a low one.

The difference between closing at 3x EBITDA or 6x EBITDA is rarely in the business itself.

It lies in how the business is presented.

And that is, ultimately, the role of a good advisor: translating what your company already is into the language spoken by the investment market, choosing the right valuation method for your specific case, and steering the process so it closes on time and at the right price.

If you are considering bringing in capital, selling, or preparing for a generational transition in the next two or three years, the time to start preparing is not when you receive the first offer.

It is now.

Luis Ángel Molero is a partner at Integra Consultoría Gerencial, S.L. and an advisor on Private Equity and M&A transactions. Member of the directory of capital-riesgo.es.